The former parent of the failed thrift Washington Mutual Bank is seeking court approval of deals to settle two securities lawsuits for around $8.4 million, adding to the drain on $250 million in insurance coverage for alleged wrongdoing by company leaders.
Word of the settlements comes as Washington Mutual Inc. awaits court approval of a Chapter 11 plan that would dole out some $7 billion to creditors but would leave shareholders with nothing. The insurance is one of the assets shareholders are looking at in a continuing Chapter 11 contest, where they are trying to avoid being shut out of any recovery.
Settlements and defense costs are eating away at the coverage Washington Mutual had for so-called director and officer liability. Earlier, Washington Mutual insurers agreed to pay $105 million to class-action plaintiffs in a Seattle case that was an amalgam of several investor suits. This week, Washington Mutual unveiled settlements with California public entities that alleged they were burned on WaMu bonds and with buyers of Washington Mutual's trust-preferred securities.
Led by the Monterey County treasurer and the city of San Buenaventura, the government agencies in California that bought WaMu bonds agreed to take $4.25 million to drop the lawsuit. Papers outlining the deal were filed Tuesday in the parent company's bankruptcy case because the money is coming from the company's insurers, so a judge has to sign off on it.
The settlement with the trust-preferred securities investors, who accused company leaders of making misleading statements, also requires approval in the U.S. Bankruptcy Court in Wilmington, Del. Trust-preferred investors would share $4.2 million from the proceeds of insurance.
WaMu binged on the subprime lending market, compiling a portfolio of chancy home loans. Regulators seized the thrift, sending its parent, Washington Mutual, into bankruptcy proceedings in September 2008. Once Washington Mutual took cover in Chapter 11, it was shielded from continued legal action. Former CEO Kerry Killinger and other officers were left on the hook in a series of lawsuits. The cases accused them of mishandling the company's affairs and misleading investors about the shaky state of the thrift that was later to go down in the largest banking collapse in U.S. history. JPMorgan Chase acquired its banking operations.
Killinger and other Washington Mutual leaders have denied allegations that they engaged in reckless lending and that they were derelict in their duties.
WaMu will urge court approval of the California bond and trust-preferred lawsuit pacts in September. In court papers it said the settlements relieve it of worry that it will have to indemnify Killinger and other defendants should the cases go to trial.
